Switch from crisis fire-fighting will save the country billions, says government

The chancellor, John Healey, aims to save billions of pounds a year by tilting government spending towards prevention rather than crisis management. The Treasury is creating a new category of ringfenced spending to encourage Whitehall departments to focus on long-term solutions rather than short-term measures. Budgets for tackling obesity, early years education and rehabilitating offenders are among the pots that could be protected as part of the preventative spending stream being introduced at next year’s spending review.

The chief secretary to the Treasury, Emma Reynolds, described the mechanism as one of the “big, long-term shifts” started in the budget that would be taken forward in the spending review. “Too often, government waits until problems have got worse before stepping in, which is bad for people and costs taxpayers more,” she said. “By investing earlier in prevention, we can improve people’s lives, take pressure off public services and make taxpayers’ money go further.”

The Treasury hopes the focus on prevention will transform policy-making in Whitehall and encourage more collaboration between departments. But the rebalancing of priorities will also increase the immediate pressure on spending departments that already face a brutal squeeze between now and the next general election. Cabinet ministers will be forced to ringfence the prevention budgets, meaning they cannot divert money to cover emergencies in the NHS, schools, the police or prisons.

The change in government accounting could end up being one of the most radical aspects of an otherwise cautious budget . Crossbench peer and former Treasury minister Jim O’Neill, who has been advising Andy Burnham, said: “It is potentially a very significant policy initiative, and should be applied to health as well as other areas.” Nick Davies, director of public services at the Institute for Government, said the new funding category could be “completely transformative” for the delivery of state provision.

The impact would be felt “both in terms of the public services’ ability to genuinely address the problems people face and in terms of the bang for its buck that central government gets on spending,” he said. “If they do it properly, this could be billions and billions of pounds being spent in a more effective way.” Related articles: No omnishambles to see here: this budget plays it safe Healey did nothing to scare the markets. Sadly, he didn’t do much else either Pilots of a more preventative approach towards individuals with complex needs in Gateshead, Tyne and Wear, and Thurrock in Essex reduced annual spending on each person by £50,000.

A study published by Manchester Metropolitan University last year concluded that replicating the policy across England would generate savings of £18bn a year. Burnham and the first secretary, Louise Haigh , have been pressing for the new focus in the Treasury. The prime minister promised in his first speech to make creating a “preventative state” a core aim of his prime ministership. “It’s about taking a more proactive approach and investing in success rather than paying for failure,” one senior Labour source said.

“Artificial intelligence allows you to find better ways of sharing and analysing the data. When you bring together health data, police data and education data, you start to identify the people who are most likely to need additional targeted support. That’s a gamechanger.” The Treasury has traditionally been sceptical of “investing to save” because officials do not believe it is possible to make credible predictions about the long-term impact of preventative measures.

But the red book, published alongside the budget, said the new preventative departmental expenditure limit (PDEL) would “help facilitate shared resource and accountability across budget holders” and “protect programmes that generate benefits over the longer term”. Treasury analysis showed that the £432m allocated to tackling rough sleeping in the budget would not only get people off the streets, it would also reduce the “significant fiscal cost” of each rough sleeper, estimated at about £14,000 a year.

The chief secretary to the Treasury, who is in charge of the spending review, will issue departments with guidance about how the new category of expenditure should be defined and tracked. “Everyone agrees that preventative spending is the right way to go. What’s different here is that this government is actually putting in place a ring fence around that money to protect it,” a Treasury source said. “It will be subject to controls from the Treasury and the usual kind of scrutiny.”

The chancellor has ruled out allowing these budgets to be funded by borrowing. Jess Sargeant, director of policy at the Demos thinktank, which proposed the change in a 2023 report, said: “At the moment, we mostly only step in when someone is already in crisis, and that can be the worst – and also the most expensive – time to do it. “There’s a lot of consensus around the importance of prevention but we don’t actually know how much we spend on it, and whether that’s going up or down.

What we do know is that when budgets are squeezed, it’s often the first thing that’s cut, and so it needs protection.” Photograph by Oli Scarff / AFP via Getty Images Labour Economy News Politics National Budget